Increase in government spending

Definition

An increase in government spending refers to a situation where the government increases its expenditure on goods, services, or investments, usually financed through borrowing or taxes. This can result in higher demand and increased economic activity.

Related terms

Fiscal policy: Refers to the use of government spending and taxation policies to influence economic conditions such as growth and inflation.

Crowding out effect: Occurs when an increase in government spending leads to reduced private sector investment due to higher interest rates or limited resources.

Multiplier effect: Describes how an initial increase in spending can have a greater impact on aggregate demand and output through subsequent rounds of increased consumption and income.